IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The Forecasts-based Instrument Rule and Repo Rates Decisions in Sweden. How closely interlinked?

Listed author(s):
  • Karolina Tura-Gawron


    (Gdansk University of Technology, Poland)

The Central Bank of Sweden declares the use of the Svensson’s concept of inflation forecast targeting (IFT). It means that the repo rate decision making process depends on the central banks’ forecasts. The concept evolved from the strict IFT with the decision making algorithm called the ‘rule of thumb’ to the flexible IFT which later includes the optimal monetary policy plan. The aim of the article is to: (1) analyse the influence of the inflation rate and GDP growth rate on the repo rate decisions, (2) analyse the influence of the inflation rate and GDP growth rate forecasts (in two year horizon) on the repo rate decisions in Sweden in years 1999-2006. The main research question is as follows: did the Monetary Policy Commitee in Sweden in years 1999-2006 made the decisions on the repo rates on the basis of forecast-based instrument rules and the rule of the thumb algorithm. The analysis encompasses the repo rates decisions, CPI inflation rate, GDP growth rate, central paths of CPI inflation forecasts and central paths of GDP growth rate forecasts in the two years horizon published by The Central Bank of Sweden in years 1999-2006. The studies are based on the Taylor-type instrument rule and forecast-based Taylor-type instrument rule. The methodology used is multiple linear regression models. The Central Bank of Sweden in years 1999-2006 implemented direct inflation forecast targeting (DIFT) rule. The decision making algorithm was based on the CPI inflation forecasts and rule of the thumb algorithm. The exact rule of the thumb was as follow: if the inflation forecast, in the two year forecast’s horizon exceeded the inflation target by 1 p.p., then the central bank raised the repo rate by 0.4 p.p; if is below , then the central bank reduced the repo rate by 0.4 p.p. If the inflation forecast was equal to the inflation target, then the repo rate remained unchanged. The historical repo rates differ from the theoretical estimated rule of the thumb’s repo rates by +/-0.28 p.p.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: First version, 2017
Download Restriction: no

Paper provided by Institute of Economic Research in its series Working Papers with number 135/2017.

in new window

Date of creation: May 2017
Date of revision: May 2017
Handle: RePEc:pes:wpaper:2017:no135
Contact details of provider: Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:pes:wpaper:2017:no135. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Adam P. Balcerzak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.